A Comprehensive Guide to Capacity planning – Definition, Types & Benefits

Planning for the future and understanding how much capacity you’re going to need for any task is tricky. You want to ensure you’re prepared for what lies ahead, but how do you establish you’re not over or under-supplying your product? How do you know if a surge in orders is coming so that you can scale up your business in advance?

You can achieve all of that and more by understanding and implementing capacity planning. 

In this blog, we will talk about the effective capacity planning process and why it’s essential for your business’s future.

What Is Capacity Planning? 

A capacity plan focuses on determining the production capacity for an organization to meet changing demands for its products.

The capacity planning process is a way to figure out how much work you can do given your workforce and upcoming deadlines.

It helps you make decisions about the number of products you need to produce (production capacity planning), how much staff you need to hire (workforce capacity planning) when you should invest in new equipment, and more. Essentially, it enables you to anticipate your future needs and plan accordingly.

It’s important to get it right because inadequate planning causes loss of customers and business, while excess capacity planning drains the company’s available resources.

What Is The Capacity Planning Process?

As businesses, capacity management and capacity planning help you identify the resources you need to meet demand. The amount of output a company can generate is directly linked to its capacity level.

Capacity planning involves three fundamental processes.

1. Measure

To start, you should measure the limits of your resources. How many deliveries can each of your drivers complete in a given timeframe? What is the maximum number of orders you can fit in your vehicle? The planning of 50 deliveries by your fleet manager takes how many hours? How many workers would you need to accomplish a target? You can proceed to the following step if you have the answers to those questions.

2. Analyze

Once you have precise measurements, you may review the data to see if you have excess or insufficient capacity or are entirely utilizing all of your resources. 

It is only after realistic analysis that you can generate accurate production plans and precisely identify areas of improvement. 

You can better grasp the numbers and forecast customer demand by creating graphs.

3. Formulate

The last step is to put all your collected data into a plan. 

You can compare the costs of hiring part-time seasonal labor vs hiring full-time employees, or funding new initiatives, or calculate the return on investment (ROI) for replacing a piece of equipment or adding assembly lines to your manufacturing facility. 

The formulation step enables you to evaluate the expected results for various possibilities.

You can use this information to determine whether it makes sense to invest in new equipment, expand your production capacity or hire more workers. You may also want to consider whether the current business model is viable and how you can improve it.

What Are The Key Components Of Capacity Planning? 

Here are the key components of capacity planning that you must know.

1. Know your minimum and maximum capacity at the moment

Before you can start working on your project, you must ensure that the people helping you out with the project are available when you need them. This means taking into account their vacation and sick days, administrative work, and other tasks they may have to do.

2. Forecasting future demand

You can forecast future demand by understanding the projects in your sales pipeline, the abilities necessary for those projects, which projects are likely to be completed, and when they will begin. Answers to these will help you effectively meet customer demand.

3. Identify potential sources of extra capacity

Now if you remotely realize that you may need extra capacity to meet your future demand, you need to identify the sources that can help you expand your capacity. Can you put in more hours and get more work done? Can your workers learn new skills so they can get a range of work done? Or should you expand our staff to increase human resource power altogether?

4. Evaluate your risks

Only after evaluating can you mitigate risk. You must know how to deal with the possibility that your workforce will burn out if you put too much pressure on them. And it’s easy to fall into this trap as 77% of workers have experienced burnout at work, and burnout was the reason behind 50% of millennials leaving their job

You must also calculate the cost of employing new staff and retraining existing ones and the risk of poorer customer satisfaction. Don’t forget to account for the missed opportunities caused by your inability to meet excessive service demand. 

What Are Strategies That Define Capacity Planning?

Let’s understand different types of capacity planning strategies and move to strategic capacity planning-

1. Lead Strategy

Our first kind of capacity planning strategy, lead strategy, is an investment in inventory beyond what is needed. Manufacturers use this strategy to gain market share against competitors, who use it to expand their own capacity—provide stock for anticipated demand increases, and avoid shortages. However, if actual demand does not match the predicted direction, manufacturers and retailers can find themselves stuck with excess inventory, which can be costly.

2. Lag Strategy

The lag strategy is less aggressive than the lead strategy. In this strategy, manufacturers respond to an actual increase in demand and boost capacity before they run out of capacity by storing excess inventory. Although manufacturers risk losing customers if their competitors react faster, they also have a chance to gain customers from their slower competitors.

3. Match Strategy

This capacity plan is a middle-of-the-road strategy between the lead and lag strategies. Match strategy doesn’t boost demand ahead of time or increase demand after existing capacity is exhausted. Instead, it makes incremental changes to manufacturers’ capacity based on the conditions in the marketplace.

4. Dynamic Strategy or Adjustment Strategy

The strategy involves adding capacity—large or small—before it is required, based on actual demand and sales forecast figures. This strategy is a much safer forecast-driven strategy that avoids waste and shortage of capacity. To ensure the accuracy of forecasts, companies should use capacity-planning tools based on information technology insights.

Moving on, let’s check out examples elaborating capacity planning strategies to ace strategic planning.

3 Examples Of Capacity Planning 

If you’re wondering how to put the mentioned strategies into action, here are some examples.

  1. Todd is the manager of a company that makes paper sheets. The company sells 500,000 packages a month—its current capacity. He decides to use a lead strategy and bet on growth by increasing production, so they don’t lose the chance to enjoy any spike in demand.
  2. Clair is the manager of another company, and she employs a lag strategy. She doesn’t have the same incentives Todd does to enhance production. Because sales are so varied each month—ranging from 300,000 to 500,000—she will upgrade production if demand skyrockets.
  3. The COVID-19 outbreak has affected the supply chains of various industries, including healthcare. The pandemic has also posed many challenges to drug manufacturers. To overcome these challenges, pharmaceutical companies may need to apply capacity planning and management practices.

Some Of The Top Capacity Planning Software

With appropriate project management, allocating resources, consolidating tasks, and optimizing your capacity planning will become easier. 

You can avoid late projects, prioritize projects, handle more projects, and identify bottlenecks in time by using the right software. So, here is the list of the best software.

1. Float

Float is one of the top software that offers capacity management along with resource scheduling. It is designed to keep you on track for your multiple projects. Its users can get a clear view of their employees’ activities. Using Float, you can schedule productive meetings with minimum context switching. Hence, this software could be an excellent choice in terms of capacity planning. 

2. Toggl Plan

Toggl Plan is a project management tool that offers three primary interfaces: one for task management, one for team planning, and one for project management. It’s easy to see workloads and manage capacity because all interfaces allow you to see the work assignments given to each team member. This also helps you identify that every resource is assigned to the right task.

3. Teamup Calendar

The Teamup Calendar makes scheduling tasks easy and manages team availability. As the name suggests, the emphasis is on viewing everything above in a calendar style, making it simple to visualize workloads.

Benefits Of Capacity Planning 

Businesses that use capacity planning techniques experience some notable following benefits:

1. Tracking operational costs

Manufacturers use different capacity planning strategies to carefully monitor the company’s capacity, especially during periods of growth and recession. These strategies also allow you to accurately budget for upcoming resource capacity changes and apply financial resources where needed. In addition, they help develop relevant delivery schedules for supplies and shipping schedules for completed products.

2. Guarantees adequate availability

Using a capacity planning strategy, you can ensure you have the necessary resources to deliver work before a contract is signed. The real-time capacity planning guides manufacturers on the scope available to undertake new projects, and actionable analytics report how much overtime is needed based on current work schedules.

3. Keep production cycles running

You can maintain production levels and increase delivery capacity by planning for seasonal demand fluctuations, using historical data, and efficiently managing the rise in demand. The strategy also identifies when the business cycle might deteriorate so that you can employ seasonal workers accordingly, which can help to avoid unnecessary expenses.

4. Identify skill shortage

Capacity planning helps you identify the skill shortage using skill gap analysis in your resource pool ahead of time. You can use training needs assessments and project assessments to make informed decisions about delivering projects in the future, and forecast skill requirements. You can thus make decisions regarding in-house and outsourced skills.

5. Helps you prepare for new production facilities

As your company grows, you may need to open new production facilities. Using information from existing locations, you can develop a more accurate projection of requirements for facilities and personnel levels. This is a valuable tool when creating budgets for your company’s growth.

6. Achieving the desired financial plan budget

Capacity planning is a technique that you, as manufacturers, can use to manage production schedules and ensure you have enough inventory to meet demand. It also helps you meet budgetary requirements based on projected sales or demand forecasts.

In addition, capacity planning tools can help companies reduce expenses such as overtime pay for employees who work longer hours when needed.

How Can Upper Play A Vital Role In Capacity Planning? 

Upper Route Planner provides a more straightforward, less complicated, and affordable method for your delivery operations. 

You might offer on-demand or weekly repeating services if you own a service company.  In addition to long-term, implementing a short-term capacity planning strategy is mandatory for you. 

  • Upper has assisted various field service organizations by providing the most efficient routes based on unique business requirements. 
  • By reducing the time drivers spend on roads and increasing productivity up to 60%, Upper ensures that you get more done using the same or lesser resources. 
  • By eliminating manual dependencies and digitizing the entire process, Upper has helped Parkwoods Products Motorcycle Parts achieve 200% more deliveries, thereby expanding their capacity. 
  • Upper keeps note of every driver, stop, and route no matter how many projects you work on simultaneously. 

As a business owner, this helps you gain clarity on the workload and how efficiently your workers handle it. This, in turn, enables you to optimize capacity planning (including team capacity planning) and identify areas for improvement, making it easier for you to come up with new business strategies.

Try  Upper’s 7-day FREE trial to know how it works.

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FAQs

Capacity planning is a way to make sure that you have enough resources to meet your business goals. It can help you manage your employees’ workloads so that they don’t get burned out and projects don’t fall behind schedule.

Three different types of capacity planning ensure that you have sufficient amounts of three critical resources for both the short- and long-term. Plan a few weeks, a few months in advance, or even a whole year.

  1. Product capacity planning
  2. Workforce capacity planning
  3. Tool capacity planning

You must consider these for effective capacity planning –

  1. Amount of demand to meet actual demand
  2. Production costs
  3. The availability of funds
  4. Management principles

Conclusion 

The goal of capacity planning is to ensure that your team has enough available resources to complete their work, so you can avoid cost overruns and get the job done right the first time. Understanding your current capacity, forecasting your demands, and efficiently working on maximizing your capacity and meeting those demands is the way forward.

With Upper, route planning and optimization software, you can effectively do delivery and route capacity planning. Having real-time visibility on number of orders, routes, constraints, and number of drivers will help you identify loopholes, optimally use your resources, save money, and get more done in less time and resources.

Author Bio
Rakesh Patel
Rakesh Patel

Rakesh Patel is the founder and CEO of Upper Route Planner. A subject matter expert in building simple solutions for day-to-day problems, Rakesh has been involved in technology for 30+ years. Looking to help delivery businesses eliminate on-field delivery challenges, Rakesh started Upper Route Planner with the ultimate goal of simplistic operations in mind.

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